Statement from Finko on recent Varks licence revocation

26.03.2020

mintosblog

Below is a comment we share with investors on Mintos from the CEO of Finko Group, Janis Pizics:

“According to the announcement of the Central Bank of Armenia, the license for business of the lending company United Credit Joint Stock company, represented by a brand name Varks, is revoked. This comes as a significant surprise both to the local team as well as to FINKO Group. The reason for revoking the license given in the statement by the Central Bank of Armenia is capital inadequacy.

 Varks earned 18.5M EUR net profit in 2019 (IFRS statements, audited by Big 4 company, currently in the signing stage) and did not breach any local regulations. In the first 2 months of 2020 Varks earned 2.5M EUR net profit (management reporting). As in any normal situation, a profitable company like Varks generated profit and, therefore, cash was subsequently lent to the group treasury company to finance business development in new markets. Such lending was done starting from the end of 2018 (agreement signed in September 2018) and balances reported to the Central Bank of Armenia on a monthly basis (as part of regular reporting). A part of the mentioned loan was repaid during 2020. However, the Central Bank of Armenia regards this loan as fully unrecoverable for 2019 reporting. 

Varks IFRS financial statements show the equity of more than 18 M EUR at the end of 2019. The capital requirement for financial institutions in Armenia is approximately 0.28 M EUR.

Varks is considering all legal options according to the law. Currently, a liquidation committee must be appointed by the shareholder of Varks and approved by the Central Bank. The committee will overtake all further actions related to operations as well as cash movement, focusing fully on covering all liabilities in the shortest possible time.

Historically Varks has been a very profitable company, and its financial position is still very strong (at the moment of the decision by the Central Bank, Varks had more than 2 M EUR on the bank account). There are no indications of any foreseeable issues to cover full outstanding payments to Mintos investors. Currently, Varks is investigating whether it will be possible to make the loan repayments to Mintos in a regular manner or there will be some limitations determined by the Central Bank.

Varks has been a strong and reliable partner for many Armenians in their need to manage their finances over the past 3 years, and we are very confused that in these uneasy times, such support has been declined to society. Moreover, Varks has been within the top 100 biggest taxpayers in Armenia both in 2018 and 2019.  

We are very disappointed to face the fact that this decision will put under question 400 jobs in Armenia, a big part of them in regions with a very high unemployment rate, and many of those being the starting point for young professionals for their career development. 

Varks will inform Mintos investors on any new development.”

Here you will find the latest Mintos update on the revocation of Varks licence.